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SAMØKONOMI-Makroøkonomiske utfordringer

Employment, investment, and inequality in the aftermath of the Covid-19 crisis

Alternative title: Employment, investment, and inequality in the aftermath of the Covid-19 crisis

Awarded: NOK 12.0 mill.

Project Number:

315769

Application Type:

Project Period:

2021 - 2026

Partner countries:

We study various aspects of the Covid-19 induced economic crisis, an in particular its long-term effects on individuals and firms. We will relate this to the ownership structure in firms, business cycles, as well as to who benefits and who looses from the covid-crisis. The ambition is to use different identification strategies and conduct causal analysis that can tell us something of the causes and effects of the economic crisis in general and what this means for policy design going forward. We examine employment effects of the COVID-19 crisis in Norway during the initial lockdown, through the subsequent recovery, and after the dust had settled. While we identify large and socially skewed effects of the crisis through its early phases, we find no long-term effects on employees exposed to early risk of job loss. For those employed at the onset of the pandemic, both the level and the socioeconomic composition of employment quickly returned to normal. In contrast, we find considerable negative long-term employment effects on people who were non-employed when the crisis hit. We argue that these patterns can be explained by social insurance policies that gave priority to protecting existing jobs and to distribute benefits to those who were temporarily laid off. Given the extreme increase in the social insurance caseload, an almost unavoidable side-effect was reduced capacity for providing services to the already non-employed. In an innovative use of various administrative register data and in collaboration with public sector agencies, we analyze the reporting response to an ambitiously targeted support scheme for Norwegian businesses at the very start of the Corona virus crisis in 2020. We find strong evidence that strategic misreporting was present but conclude that its remaining quantitative extent after the enforcement actions already taken by the tax authorities was relatively small. Firms tend to misreport 4 percent more often than expected and the actual support paid out was 5 percent higher than what it should have been. This provides more general lessons for the design of public transfer programs and the importance of information and transparency. There has been extensive dissemination activity on the project, with participation in public debates and selections, op-eds, interviews, working papers, presentation and dialogue with public agencies and decision-makers, as well as academic presentations and publications.

We plan to exploit the impact of the crisis to analyze how the economy actually works by utilizing rich administrative micro data as well as survey data. By combining frontline methodological advances with detailed data from various sources and several countries we will provide novel insights into core economic, political and societal research questions. We have already provided detailed insights into the nature of the first six weeks of the Covid-19 crisis in Norway in a previous project (Alstadsæter et al, 2020), documenting that the effects of social distancing measures quickly spread to industries that were not directly affected by policy. We also found that the shock had a strong socio-economic gradient, hit a financially vulnerable population, and parents with younger children, and was driven by layoffs in smaller, less productive, and financially weaker firms. In the current project, we build on our previous results and utilize very detailed Norwegian administrative data covering the universe of Norwegian firms and individuals for the period 1993-2018 and onwards to bring new insights on incentives and behavior and how job loss may foster entrepreneurship. In a novel sub-project, we will study the anatomy of firms’ investments, job creation, and innovation in an European setting by combining survey og register data in Norway, Denmark, and Germany in order to facilitate cross-country comparisons. We also study how the crisis affects migration patterns and what the consequences for the Norwegian labor market are. Finally, we will build on our previous results and investigate longer term impact on inequality, as well as delving into the question and developing a new methodology to analyze the effects of a wealth tax on value creation.

Publications from Cristin

Funding scheme:

SAMØKONOMI-Makroøkonomiske utfordringer